-Partners in Practice -

Picture this: A large project you had been counting on is delayed. You find yourself facing another of those temporary "valleys" in your workload that seem to come and go like the seasons. This time, though, you have a serious dilemma on your hands. If you reduce staff, those you would have to let go are the ones you will need most when the project finally does come through. They are people you would not want to lose in any event.

The telephone rings. A colleague is on the line, excited about a new project his firm has been awarded. He is looking for help. He cannot possibly staff up quickly enough to meet the project schedule, and he wants to know if you might be in a position to lend several key employees to work on it.

It seems like a perfect opportunity. You can help out an old friend and relieve pressures on your overhead budget at the same time. Even better, you can avoid being forced to let staff members go you desperately want to keep.

There is, however, one question about all this you might want to raise at the outset: Who is going to be responsible for the work of your employees while they are on loan? The answer may seem to be obvious--responsibility ought to follow control of the work. Indeed, this concept is reflected in the common law in most states. Surely, it ought to afford any protection you might need in the event problems should arise later. Unfortunately, this is not necessarily so.

Assume, for a moment, that the worst should happen. There is a collapse, and several innocent people are injured, some severely. Serious questions are raised about the cause. Professional responsibility, even though unlikely, cannot easily be ruled out. A suit is filed on behalf of those injured claiming damages in excess of $10 million.

You are named in the suit, along with the general contractor, the fabricator and erector of the installation that failed, the owner, your friend, and all the subconsultants involved. The rationale? Somewhere (collectively, if need be) there ought to be sufficient resources to compensate the injured for their losses. It will be a costly, time-consuming process to sort out just where those resources are going to be found.

The stakes are enormous. Few, if any, of the defendants are anxious to take their case before a jury whose sympathies they know will lie with the injured. Pressures to settle mount as the process drags on.

But, why you? Attorneys for the plaintiffs are likely to argue that you either had or, at a minimum, shared responsibility for the acts of your employees on loan. They may point to the economic benefit your firm realized as a result. They may attempt to show that your employees acted on your behalf throughout the project, that they were ultimately responsible to you. They may claim your firm, in fact, served in a subconsulting role.

In response, your attorneys will seek to demonstrate that you had no control over the work and no responsibility for the outcome. One of the first things they will ask you for is a copy of your lending agreement, hoping the language will be clear on the issue of responsibility, hoping the matter can easily be put to rest (at least as far as the interests of your firm are concerned). At this point, it will be too late for you to wonder whether it might not have been a good idea to have had such an agreement.

How can you protect yourself against unwarranted liability for employees on loan without coming across as unreasonable, if not paranoid, about nonexistent horses escaping from imaginary barns? The best solution may be the most straightforward: If you can reach an understanding with your employees (and with the borrowing firm) concerning their return to your employ as soon as their work on the project is complete, it may make sense to grant them a leave of absence and have them picked up on the payroll of the borrowing firm.

There are some administrative problems involved with this, duplication of FICA withholding, for example. These problems can normally be worked out. But, for a variety of reasons, it is not a solution every firm will be comfortable with. If you find yourself turning, instead, to the alternative of lending your own employees, here are some simple precautions you might consider:

1. First, remember that your expectations are likely to be identical to those of the borrowing firm--responsibility ought to follow control of the work. With this in mind, it should not seem unreasonable to raise the issue at the outset. In all probability, you do have a clear, mutual understanding. But, unless you make certain of it, up front, you will never know whether a potential problem exists until too late.
2. Take the trouble to reduce your agreement to writing. It does not have to be a complex legal document. It need only reflect the nature of your offer to lend, the consideration you will receive in return, and a clear understanding on the issues of control over the work of your employees on loan and responsibility for the consequences.
3. Make certain the borrowing firm has the financial capacity to stand behind its written agreement. In most cases, this requires professional and general liability insurance. It may also require endorsements adding limited contractual liability protection (to cover the assumption of liability for the acts of your employees). This can be as important to the borrowing firm as to you, for unless affirmative steps are taken to make certain its interests in the work of your employees are covered, they may not be.
4. Ask for (and get) certificates of insurance indicating that the protections you need are, in fact, in place. Before you finalize your agreement, you may want to contact your insurance broker for help in ascertaining just what form those protections might reasonably take. The most appropriate course of action is likely to depend on the specific circumstances at hand.
5. Finally, none of these protections is going to keep you from being drawn into a lawsuit, nor are they going to compensate you for the costs you incur in extracting yourself. Should you decide that lending employees makes sense only if you can minimize this risk, you will probably need an indemnification provision--one designed to protect your firm against claims, damages, liability, and costs (including costs of defense) arising out of the performance of your employees on loan. Such a provision can be written so as to be both insurable and fair, and with the help of your attorney and your insurance broker, you should be able to draft appropriate language. For our part, we would be pleased to assist in any way we can.

For inquiries or problems please contact us via e-mail at Earleen Thomas or call us directly at 800-705-7742.
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